Exhibit 99.2
| First Quarter Fiscal Year 2011 |  |
|
| Prepared Remarks | April 28, 2011 | |
Jonathan Bush, President, Chairman & Chief Executive Officer
Tim Adams, Senior Vice President, Chief Financial Officer
Tim Adams, Senior Vice President, Chief Financial Officer
About These Remarks
The following commentary is provided by management in conjunction with athenahealth’s first quarter
fiscal year 2011 earnings press release. These remarks represent management’s current views on the
Company’s financial and operational performance and are provided to give investors and analysts
more time to analyze and understand our performance in advance of the earnings conference call.
These prepared remarks will not be read on the conference call. A complete reconciliation between
GAAP and non-GAAP results as well as a summary of supplemental metrics and definitions are provided
in the tables following these prepared remarks.
Earnings Conference Call Information
To participate in the Company’s live conference call and webcast, please dial (800) 446-2782, or
(847) 413-3235 for international calls, using conference code No. 29497876 or visit the Investors
section of the Company’s web site: www.athenahealth.com. A replay will be available for one week
following the conference call at (888) 843-7419, or (630) 652-3042 for international calls, using
conference code No. 29497876. A webcast replay will also be archived on the Company’s website.
Safe Harbor and Forward-Looking Statements
These remarks contain forward-looking statements, which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, including statements reflecting
management’s expectations for future financial and operational performance and operating
expenditures, expected growth, including anticipated annual growth rates, profitability and
business outlook, increased sales and marketing expenses, increased cross-selling efforts among the
Company’s service offerings, expected client implementations, expected certification and regulatory
approvals, the benefits of the Company’s current service offerings and research and development for
new service offerings, the benefits of current and expected strategic sales and marketing
relationships, expected adoption trends for the Company’s service offerings and statements found
under the Company’s Reconciliation of Non-GAAP Financial Measures section of these remarks. The
forward-looking statements in these remarks do not constitute guarantees of future performance.
These statements are neither promises nor guarantees, and are subject to a variety of risks and
uncertainties, many of which are beyond the Company’s control, which could cause actual results to
differ materially from those contemplated in these forward-looking statements. In particular, the
risks and uncertainties include, among other things: the Company’s fluctuating operating results;
the Company’s variable sales and implementation cycles, which may result in fluctuations in its
quarterly results; risks associated with its expectations regarding its ability to maintain
profitability; impact of increased sales and marketing expenditures, including whether increased
expansion in revenues is attained and whether impact on margins and profitability is longer term
than expected; changes in tax rates or exposure to additional tax liabilities; the highly
competitive industry in which the Company operates and the relative immaturity of the market for
its service offerings; and the evolving and complex governmental and regulatory compliance
environment in which the Company and its clients operate. Existing and prospective investors are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to update or revise the information contained
in these remarks, whether as a result of new information, future events or circumstances, or
otherwise. For additional disclosure regarding these and other risks faced by the Company, see the
disclosures contained in its public filings with the Securities and Exchange Commission, available
on the Investors section of the Company’s website at http://www.athenahealth.com and on the
SEC’s website at http://www.sec.gov.
Use of Non-GAAP Financial Measures
These remarks contain non-GAAP financial measures as defined by SEC Regulation G. The GAAP
financial measure most directly comparable to each non-GAAP financial measure used or discussed,
and a reconciliation of the differences between each non-GAAP financial measure and the comparable
GAAP
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financial measure, are included following these prepared remarks or can be found within the
Company’s first quarter year 2011 earnings press release on the Investors section of the Company’s
web site at http://www.athenahealth.com.
Opening Remarks
athenahealth is off to a strong start in fiscal year (FY) 2011. Year-to-date, we bolstered our
ability to grow our client base with the appointment on February 18th of Dr. Stephen
Kahane as President of our Enterprise Services Group. We expanded our sales channel capacity by
adding SynerMed, Microsoft Corporation, and the Regional Extension Centers (RECs) for California,
Maine and West Virginia to our channel partner community. Adoption of our services grew as several
large medical groups brought us new business: Summit Medical Group, Florida Woman Care, St.
Vincent’s Healthcare and most recently, CaroMont Health. We reinforced our clinical expertise by
appointing Dr. Todd Rothenhaus to the newly created position of Vice President, Chief Medical
Information Officer in April. Finally, we successfully initiated the process of meaningful use
attestation for eligible athenaClinicals® clients as the Centers for Medicare and Medicaid Services
(CMS) opened the attestation window on April 18th.
Results Overview
athenahealth’s top line results for the first quarter of FY 2011 reflect strong annual revenue growth:
| • | Total revenue: |
| o | $69.9 million in Q1 2011, representing 28% growth over $54.5 million in Q1 2010 |
Our bottom line results for Q1 2011, consistent with our growth strategy, demonstrate strong sales and marketing investments and a focus on operating leverage:
| • | Non-GAAP Adjusted Gross Profit: |
| o | $43.7 million or 62.5% of total revenue in Q1 2011, an increase of 37% over $31.9 million or 58.5% of total revenue in Q1 2010 |
| • | GAAP selling and marketing expense: |
| o | $16.9 million or 24.2% of total revenue in Q1 2011, an increase of 40% over $12.1 million or 22.1% of total revenue in Q1 2010 |
| • | GAAP general and administrative expense: |
| o | $11.7 million or 16.8% of total revenue in Q1 2011, essentially flat with $11.7 million or 21.4% of total revenue in Q1 2010 |
| • | Non-GAAP Adjusted EBITDA: |
| o | $13.4 million or 19.1% of total revenue in Q1 2011, an increase of 109% over $6.4 million or 11.7% of total revenue in Q1 2010 |
| • | Non-GAAP Adjusted Net Income: |
| o | $5.9 million or $0.17 per diluted share in Q1 2011, an increase of 161% over $2.3 million or $0.06 per diluted share in Q1 2010 |
We believe that the Company’s underlying drivers of long-term success remain strong:
| • | Employee engagement at 4.1 out of 5.0 in Q1 2011, flat with 4.1 in Q1 2010 | ||
| • | Client satisfaction at 86.2% in Q1 2011, relatively flat with 86.6% in Q1 2010 | ||
| • | Average Client Days in Accounts Receivable (DAR) of 41.0 days in Q1 2011, up one day from 40.0 days in Q1 2010 |
athenahealth’s client base continues to expand while client adoption of other services in the athenahealth service suite grows rapidly. During Q1 2011:
| • | 69% of all new athenaCollector® deals included athenaClinicals, up from 53% in Q1 2010 | ||
| • | 25% of all new athenaCollector deals included athenaClinicals and athenaCommunicator® |
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| • | 581 net new active physicians using athenaCollector added for a total of 19,778, up 21% from 16,369 total physicians in Q1 2010 | ||
| • | 830 net new active providers using athenaCollector added for a total of 27,944, up 17% from 23,978 total providers in Q1 2010 | ||
| • | 527 net new active physicians using athenaClinicals added for a total of 2,910, up 128% from 1,275 total physicians in Q1 2010 | ||
| • | 813 net new active providers using athenaClinicals added for a total of 4,161, up 123% from 1,867 total providers in Q1 2010 | ||
| • | 198 net new active physicians using athenaCommunicator added for a total of 934, up 168% from 348 total physicians in Q1 2010 | ||
| • | 351 net new active providers using athenaCommunicator added for a total of 1,564, up 205% from 513 total providers in Q1 2010 |
athenaCollector network performance metrics were as follows for Q1 2011:
| • | $1,608,313,685 posted in total client collections, up 23% from Q1 2010 | ||
| • | 13,651,586 total claims submitted, up 22% from Q1 2010 | ||
| • | 41.0 average client Days in Accounts Receivable (DAR), up one day from Q1 2010 | ||
| • | 74.6% electronic remittance advice (ERA) rate, an improvement of approximately six points from Q1 2010 | ||
| • | 94.1% first pass resolution (FPR) rate, an improvement of one point over Q1 2010 |
Product Development Discussion
Product development at athenahealth is organized around the mission of being the best in the world
at getting doctors paid for doing the right thing. In order to fulfill this mission, we deliver
services backed by cloud-based software, proprietary knowledge and robust back-office services.
athenaCollector Service Offering
athenaCollector, our core revenue cycle service offering now entering its 11th year
in-market, continues to maintain its industry leadership position. Clients using our revenue cycle
management service benefit from the work athenahealth performs in processing medical claims across
more than 900 payers in 45 states on a daily basis. Since the inception of this service,
athenahealth has managed more than 190 million medical claims, and processed more than $20 billion
in client collections. The experience we have gained by performing this work for our clients has
generated more than 40 million permutations of billings rules within our patented athenaNet rules
engine. During the lifetime of a client relationship, our ongoing services yield intelligence that
continues to improve performance. Furthermore, we leverage the operational efficiencies gained
through economies of scale to expand the scope of service we deliver to clients, further enhancing
our value proposition over time.
athenahealth’s ability to keep pace with changing reimbursement models and billing requirements —
so that our clients don’t have to — is more important to our clients than ever. Integration with a
flexible clinical platform, or electronic health record (EHR), is also becoming increasingly
important. Fee-for-service reimbursement models driven by data submitted in medical claims are
being augmented by quality-based reimbursement models driven by demonstration of electronic care
coordination and by the submission of clinical data captured in EHRs. In the future, we believe
that physicians will no longer be compensated solely on the basis of the quantity of patients they
see but also on the basis of the quality of the care they provide. Initiatives such as the HITECH
Act for meaningful use of EHRs, and most recently, the proposed Accountable Care Organization (ACO)
requirements, clearly reflect the convergence of
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revenue and clinical cycle management. athenaCollector’s strong integration with athenaClinicals
enables our clients to embrace changing reimbursement models with confidence and to take advantage
of new pay-for-performance (P4P) revenue opportunities.
The meaningful use attestation process presents an exemplary opportunity for athenahealth to
demonstrate the tangible value of our integrated model for our clients’ bottom line. In support of
this process, the athenaCollector service team will pursue the collection of meaningful use dollars
for athenaClinicals clients participating in the HITECH Act. We believe that athenahealth is the
only provider of health care IT that offers this level of service and coordination between revenue
and clinical cycle management and we believe it will be critical to medical groups’ successful
collection of incentive payments associated with the HITECH Act.
athenaClinicals Service Offering
2011 is athenaClinicals’ fifth year in-market and it has emerged as a leading EHR platform. As
such, we are moving to increase its role as a national source of reliable clinical information.
athenaClinicals has received high client confidence and satisfaction scores in surveys published by
organizations such as KLAS, a research firm specializing in monitoring and reporting the
performance of health care vendors, as well as in our own internal client satisfaction surveys. It
is also among the most highly recommended EHR platforms by government-sponsored Regional Extension
Centers (RECs) and has received recognition from the payer community as evidenced by our strategic
marketing alliance with Humana, Inc. Furthermore, Microsoft Corporation is leveraging
athenaClinicals to enable a complete, consolidated view of medical records in both the inpatient
and outpatient settings for providers and patients to access.
athenahealth
bolstered its commitment to clinical excellence with the appointment of Dr. Todd Rothenhaus to the newly created role of Chief Medical Information Officer (CMIO) in April. The CMIO
role at athenahealth is focused primarily on clinical information integrity. Unlike pure software
companies, athenahealth is an active manager of clinical information, sending, receiving and
tracking it on our clients’ behalf. This fiduciary-type role requires a level of quality assurance
and oversight that software companies need not contemplate and we are extremely confident in Todd’s
ability to fulfill it.
Since the HITECH Act was established in 2009, the health care IT industry has been largely focused
on preparing technology platforms and medical groups for the meaningful use of EHRs. The
athenaClinicals team has been working especially hard due to our dual focus on technology and
services. While we were pleased to achieve certification as a
Complete EHR on September 30, 2010 by
the Certification Commission for Health Information Technology (CCHIT®), we regard as ultimately
more significant the work our team has performed to train and support athenaClinicals clients in
registering, demonstrating and attesting for meaningful use. Looking ahead, we are just beginning
the work of pursuing incentive payments for clients as the meaningful use attestation process
begins in Q2 2011.
To ensure our clients’ successful participation in the HITECH Act through meaningful use of an EHR,
the athenaClinicals team designated several meaningful use pilot sites and followed them closely
during Q1 2011, the first consecutive 90-day period for demonstration of meaningful use. We worked
with CMS to better understand the registration process and we tracked each pilot site’s progress in
demonstrating meaningful use. On April 18th, CMS launched a secure web-based platform to
allow eligible providers to begin the attestation process. Our pilot sites were among the first to
participate and based on the timeline CMS disclosed, we expect that these clients will begin to
receive their checks for the 2011 Medicare program within four to six weeks following attestation.
Leading these pilots gave us valuable insight and knowledge that we will leverage to streamline the
meaningful use demonstration and attestation process for all eligible athenaClinicals clients in
the months to come.
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Beyond the HITECH Act, we are now tracking 23 discrete P4P programs for athenahealth clients and we
remain focused on preparing clients for new reimbursement models over the long-term.
athenaCommunicator Service Offering
We celebrated the first anniversary of athenaCommunicator’s launch on March 17, 2011.
athenaCommunicator addresses patient cycle management by streamlining physician-patient
interactions and providing patients with better access to medical providers and information. To
date, more than 100,000 patients have registered for the patient portal element of this service
offering, representing, on average, 20% of each athenaCommunicator client’s patient population. The
athenaCommunicator value proposition is currently grounded in improved schedule density, patient
collections and reduced administrative costs. We believe that, over the long-term, adoption of
athenaCommunicator will continue to grow as new care coordination standards and revenue
opportunities emerge and as patients demand better access to providers as well as their medical
information.
athenaCommunity Initiative
It has been more than one year since we began developing athenaCommunity, an initiative aimed at
driving more efficient exchange of health information. We began working with one pilot site in 2010
and executed the first facilitated transaction for a clean, electronic patient referral between a
primary care physician and a specialist during Q3 2010.
Today, we
are pleased to announce that Cook Children’s Health Care System of Texas has chosen to
participate as an athenaCommunity pilot as well. Cook Children’s has been an athenaCollector and
athenaClinicals client since February 2010 and implemented the Microsoft Amalga Unified
Intelligence System (UIS) in 2009. The athenaCommunity pilot program will support Cook Children’s’
efforts to leverage cutting-edge technology to improve care coordination by optimizing patient
referral management among its employed base of 350 medical providers. We plan to expand the
athenaCommunity pilot to more sites during 2011.
Revenue Discussion
Our total revenue of $69.9 million in Q1 2011 grew by 28% or $15.5 million over Q1 2010. Our
revenue growth is primarily driven by athenaCollector client base expansion and growth in the use
of our athenaClinicals and athenaCommunicator services.
In terms of trends in our recurring revenue base, same store analysis of claims created, a proxy
for physician office utilization, indicates that physician office activity in Q1 2011 returned to
more normalized levels versus the weaker levels we experienced in Q1 2010.
Client Base Discussion
The total number of physicians live on athenaCollector, our core service offering, is the metric we
use to define our client base and market share. Annual growth in total revenue continues to outpace
growth in our physician base. We believe this trend will continue as athenaClinicals and
athenaCommunicator are included in a growing portion of new deals and as adoption of these services
spreads across our existing client base. During Q1 2011 69% of all new athenaCollector deals
included athenaClinicals and 25% of all new athenaCollector deals included athenaCommunicator as
well as athenaClinicals.
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athenahealth Service Offering Adoption
athenaCollector Clients
During Q1 2011, total active physicians on athenaCollector grew by 21% year-over-year to 19,778. On
a sequential basis, we added 581 net new active physicians to the network. Our quarterly net new
physician additions may vary widely due to the number and size of clients that go live in a
particular quarter.
athenaClinicals Clients
Turning to athenaClinicals, we continue to experience rapid growth in client adoption of this
service. Total active physicians live on athenaClinicals grew by 128% year-over-year to 2,910. On a
sequential basis, we added 527 net new active physicians on athenaClinicals. This equates to an
overall adoption rate of 15% of total athenaCollector physicians, up from 8% in Q1 2010. We expect
the athenaClinicals client base to increase significantly over time due to cross-selling within our
existing base and growth in the volume of combined deals.
athenaCommunicator Clients
Our athenaCommunicator client base is growing rapidly as well. Total active physicians live on
athenaCommunicator grew by 168% year-over-year to 934. On a sequential basis, we added 198 net new
active physicians on athenaCommunicator. This equates to an overall adoption rate of 5% of total
athenaCollector physicians. We expect the athenaCommunicator client base to increase significantly
over time due to cross-selling within our existing base and growth in the volume of combined deals.
New Deals
Within the
group market segment, we were pleased to announce this week that
CaroMont Health selected athenahealth’s full integrated suite of cloud-based services for its employed base of 200
medical providers (~140 physicians). These providers are expected to go live on athenaCollector,
athenaClincals and athenaCommunicator by the end of 2011.
Client Implementations
In terms
of our publically disclosed implementation pipeline, West Penn Allegheny Health System
(~600 physicians) is executing a phased implementation of athenaCollector. A portion of the WPAHS
provider base went live during Q1 2011 while the majority of WPAHS providers will continue to go
live in phases over the next several months.
St.
Vincent’s HealthCare (120 providers) and Summit Medical Group (230 providers) will be going
live on athenaCollector during the coming months. We have completed the majority of athenaClinicals
implementations at Vanguard Health Systems (more than 250 providers) while athenaClinicals
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implementations
continue at Steward Health Care System LLC (f/k/a Caritas Christi — 500 providers)
and Capella Healthcare (130 providers). Finally, implementations of all three services are in
progress for CHRISTUS Health (150 providers) and Southwest Kidney Institute (50 providers).
Non-GAAP Adjusted Gross Margin Discussion
Our non-GAAP Adjusted Gross Margin was 62.5% for Q1 2011, up from 58.5% in Q1 2010. This
year-over-year expansion was supported primarily by operating efficiencies within our
athenaCollector service organization. In addition, we have significantly reduced the cost of
processing clinical documents and expanded operating efficiencies within our athenaClinicals
service organization. By employing technology to automate and eliminate manual work, athenahealth
generates economies of scale as our client base grows. These efficiencies enable us to continue
expanding our service offerings while investing in growth.
Selling and Marketing Discussion
As a high growth company with a relatively small share of a massive market opportunity, the
productivity of our sales and marketing activities is a key area of focus for us. These activities
incur both fixed and variable costs as they range from investment in personnel and infrastructure
to spending on new advertising campaigns and paid search terms. As a result, the productivity of
these investments is largely measured over the long term, particularly as it may take six to nine
months of implementation before new clients fully contribute to revenue and join the ranks of our
active client base.
The majority of our incremental selling and marketing spend to date has been weighted toward
administrative personnel and infrastructure build-out as we acquired the fixed resources needed to
pursue our growth goals successfully. During the remainder of 2011, we will continue to invest in
scaling our growth organization but will shift more incremental selling and marketing investment to
variable items, or in-market, demand-generation and sales activities, all of which have a more
direct connection to lead generation. We began this shift in Q1 2011 and look forward to updating
investors on our progress with these investments as the year goes on.
Looking forward, our sales prospects are increasingly attractive as failed early adopters of
software-based EHRs (see Wave 3 below) reenter the market for EHR services. Our analysis of EHR
adoption over the last decade leads us to believe that there are three “waves” of activity at play
within our addressable market:
Electronic Health Record (EHR) Adoption Trends
athenahealth was a non-player in Wave 1, a partial player in Wave 2, and we believe we will be a
major player in Wave 3. Wave 1 represents the early adopter of EHRs, particularly those who
purchased EHRs
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following the Stark Law “relaxation” of 2006. athenaClinicals was too immature to
earn us any business during this wave. We believe that the Wave 2 purchase cycle has also come and
gone, with most for-profit institutions having purchased but not yet implemented an EHR solution.
athenahealth obtained some share of business from Wave 2, but not an overwhelming amount due to our
limited awareness and limited reference base of live athenaClinicals clients. Wave 3, currently
unfolding, consists of institutions whose attempted implementations of software-based EHRs have not
succeeded. We believe that large numbers of the declared “installed base” of traditional
software-based EHRs are not in use today and we are seeing more anecdotes to corroborate this as we
bring new athenaClinicals clients onto the network. While it is extremely painful for any
institution to acknowledge and release the sunk costs of software-based EHRs in these situations,
the significant go-forward cash flow improvements that athenahealth can generate are increasingly
appealing to this audience.
Sales Update
The athenahealth sales organization is comprised of all quota-carrying sales representatives as
well as our sales team leaders, channel sales team, and sales training and development
organization. Q1 2011 was the first quarter during which we employed our new two-pronged sales
approach. Effective January 1, 2011, we dedicated one team, led by Bill Conway, to drive sales to
small and group practices while the other team, led by Dr. Steve Kahane, focuses on enterprise
organizations. In addition to the enterprise sales team, Dr. Kahane’s group includes account
management and enterprise solutions design. We believe that creating these distinct teams aligns us
more closely with the needs of physician organizations across all market segments and positions us
to compete more aggressively for their business.
As of March 31, 2011, we have a total of 78 quota-carrying sales representatives, up 42% from 55
quota-carrying sales representatives on March 31, 2010. We are planning to grow our quota-carrying
sales force by approximately 30% in 2011 to reach a total of at least 100 quota-carrying sales
representatives by
year-end. Most of these new sales representatives will be added to the small and group practice
segments, where the majority of U.S. ambulatory physicians practice medicine.
In addition to our internal sales resources, we leverage a host of external partners to generate
new business. This channels organization supplies us with access to hundreds of thousands of
physicians across the country. We have announced several new channel partners year-to-date:
| • | January 12, 2011 — SynerMed, Inc., a large managed services organization (MSO) in California | ||
| • | February 14, 2011 — The West Virginia Regional Health Information Technology Extension Center (WVRHITEC) | ||
| • | February 22, 2011 — Microsoft Corporation’s Amalga, an enterprise health intelligence platform, and HealthVault, a trusted online platform for collecting, storing and sharing personal health information with patients | ||
| • | April 5, 2011 — The Maine Regional Extension Center (MEREC) | ||
| • | April 19, 2011 — The California Health Information Partnership & Services Organization (CalHIPSO), the largest federally designated Regional Extension Center serving California |
Marketing Update
The athenahealth marketing organization is comprised of growth and sales operations, event and
partner marketing, inside sales agents (ISAs), advertising, corporate communications and product
marketing teams. This organization executes our in-market investments in an effort to generate new
business opportunities for athenahealth.
Our 2011 marketing efforts got off to a strong start in Q1 2011 with expanded activities across
many programs. Specifically, we increased our investments in advertising placements, in both print
and digital environments and in our paid search program, the top driver of leads for athenahealth.
The marketing
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events team completed a series of regional campaigns (flywheels, dinner series, etc.)
and expanded our ability to engage and educate a record number of prospects with a new theatre
presentation area at the Healthcare Information and Management Systems Society (HIMSS) tradeshow in
February.
Most recently, our marketing organization hosted athenahealth’s 2011 User Conference in Boston, MA
this week. Over the course of three days, approximately 600 clients attended over 40 informative
sessions on topics ranging from human resources best practices to billing workflows and Patient
Centered Medical Home (PCMH). Dr. Atul Gawande, an accomplished surgeon, esteemed professor and
award winning author, delivered the keynote speech and was presented with athenahealth’s first
Vision Award, given to an organization or individual which best exemplifies athenahealth’s vision
of an information infrastructure that helps make health care work as it should. Our user conference
provides an essential ongoing venue for educating our clients about important industry issues
affecting their practices, for listening to their feedback and for helping them to optimize their
financial and operational performance with our services.
Balance Sheet and Cash Flow Highlights
Our cash, cash equivalents, short- and long-term investments totaled $125.7 million at March 31,
2011 and our short- and long-term debt and capital lease obligations totaled $8.4 million.
Operating cash flow was $4.0 million in Q1 2011, up 256% from $1.1 million in Q1 2010. Our capital
expenditures, including capitalized software development, were $3.5 million or 5.1% of total
revenue in Q1 2011.
Fiscal Year 2011 Outlook
athenahealth is not making any changes to the outlook presented during the Company’s 3rd
Annual Investor Summit on December 16, 2010.
Closing Remarks
athenahealth is well-positioned to compete more aggressively than ever as a disruptive innovator in
2011. As the stability of incumbent, software-based health care IT solutions is tested by the rapid
pace of change in health care and as provider balance sheet-sensitivity grows, we are confident
that athenahealth will continue to thrive.
Stock-Based Compensation Expense and Reconciliation of Non-GAAP Financial Measures
athenahealth, Inc.
9
STOCK-BASED COMPENSATION EXPENSE
(Unaudited, in thousands)
(Unaudited, in thousands)
Set forth below is a breakout of stock-based compensation expense for the three months ended March
31, 2011 and 2010:
| Three months ended March 31, | ||||||||
| 2011 | 2010 | |||||||
Stock-based compensation expense charged to: |
||||||||
Direct operating |
$ | 605 | $ | 468 | ||||
Selling and marketing |
923 | 690 | ||||||
Research and development |
530 | 324 | ||||||
General and administrative |
1,947 | 1,302 | ||||||
Total stock-based compensation expense |
$ | 4,005 | $ | 2,784 | ||||
athenahealth, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES
(Unaudited, in thousands, except per share amounts)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES
(Unaudited, in thousands, except per share amounts)
The following is a reconciliation of the non-GAAP financial measures used by the Company to
describe the Company’s financial results determined in accordance with United States generally
accepted accounting principles (GAAP). An explanation of these measures is also included below
under the heading “Explanation of Non-GAAP Financial Measures”.
While management believes that these non-GAAP financial measures provide useful supplemental
information to investors regarding the underlying performance of the Company’s business operations,
investors are reminded to consider these non-GAAP measures in addition to, and not as a substitute
for, financial performance measures prepared in accordance with GAAP. In addition, it should be
noted that these non-GAAP financial measures may be different from non-GAAP measures used by other
companies, and management may utilize other measures to illustrate performance in the future.
Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with
the Company’s results of operations as determined in accordance with GAAP.
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Non-GAAP Adjusted Gross Margin
Set forth below is a presentation of the Company’s “Non-GAAP Adjusted Gross Profit” and “Non-GAAP
Adjusted Gross Margin,” which represents Non-GAAP Adjusted Gross Profit as a percentage of total
revenue.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (unaudited, in thousands) | 2011 | 2010 | ||||||
Total revenue |
$ | 69,930 | $ | 54,477 | ||||
Direct operating expense |
27,270 | 23,519 | ||||||
Total revenue less direct operating expense |
42,660 | 30,958 | ||||||
Add: Stock-based compensation expense allocated to direct operating expense |
605 | 468 | ||||||
Add: Amortization of purchased intangibles |
460 | 460 | ||||||
Non-GAAP Adjusted Gross Profit |
$ | 43,725 | $ | 31,886 | ||||
Non-GAAP Adjusted Gross Margin |
62.5 | % | 58.5 | % | ||||
Non-GAAP Adjusted EBITDA Margin
Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted EBITDA” and “Non-GAAP
Adjusted EBITDA Margin,” which represents Non-GAAP Adjusted EBITDA as a percentage of total
revenue.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (unaudited, in thousands) | 2011 | 2010 | ||||||
Total revenue |
$ | 69,930 | $ | 54,477 | ||||
GAAP net income |
3,251 | 277 | ||||||
Add: Provision for income taxes |
2,305 | 281 | ||||||
Add: Total other (income) expense |
(33 | ) | 169 | |||||
Add: Stock-based compensation expense |
4,005 | 2,784 | ||||||
Add: Depreciation and amortization |
3,398 | 2,420 | ||||||
Add: Amortization of purchased intangibles |
460 | 460 | ||||||
Non-GAAP Adjusted EBITDA |
$ | 13,386 | $ | 6,391 | ||||
Non-GAAP Adjusted EBITDA Margin |
19.1 | % | 11.7 | % | ||||
11
Non-GAAP Adjusted Operating Income
Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted Operating Income” and
“Non-GAAP Adjusted Operating Income Margin”, which represents Non-GAAP Adjusted Operating Income as
a percentage of total revenue.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (unaudited, in thousands) | 2011 | 2010 | ||||||
Total revenue |
$ | 69,930 | $ | 54,477 | ||||
GAAP net income |
3,251 | 277 | ||||||
Add: Provision for income taxes |
2,305 | 281 | ||||||
Add : Total other (income) expense |
(33 | ) | 169 | |||||
Add: Stock-based compensation expense |
4,005 | 2,784 | ||||||
Add: Amortization of purchased intangibles |
460 | 460 | ||||||
Non-GAAP Adjusted Operating Income |
$ | 9,988 | $ | 3,971 | ||||
Non-GAAP Adjusted Operating Income Margin |
14.3 | % | 7.3 | % | ||||
Non-GAAP Adjusted Net Income
Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted Net Income” and “Non-GAAP
Adjusted Net Income per Diluted Share.”
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (unaudited, in thousands except per share amounts) | 2011 | 2010 | ||||||
GAAP net income |
$ | 3,251 | $ | 277 | ||||
Add: (Gain) loss on interest rate derivative |
(65 | ) | 60 | |||||
Add: Stock-based compensation expense |
4,005 | 2,784 | ||||||
Add: Amortization of purchased intangibles |
460 | 460 | ||||||
Sub-total of tax deductible items |
4,400 | 3,304 | ||||||
(Less): Tax impact of tax deductible items (1) |
(1,760 | ) | (1,322 | ) | ||||
Non-GAAP Adjusted Net Income |
$ | 5,891 | $ | 2,259 | ||||
Weighted average shares — diluted |
35,657 | 35,201 | ||||||
Non-GAAP Adjusted Net Income per Diluted Share |
$ | 0.17 | $ | 0.06 | ||||
| (1) | - Tax impact calculated using federal statutory tax rate of 34% and a blended state tax rate of 6% |
12
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (unaudited, in thousands except per share amounts) | 2011 | 2010 | ||||||
GAAP net income per share — diluted |
$ | 0.09 | $ | 0.01 | ||||
Add: (Gain) loss on interest rate derivative |
— | — | ||||||
Add: Stock-based compensation expense |
0.12 | 0.08 | ||||||
Add: Amortization of purchased intangibles |
0.01 | 0.01 | ||||||
Sub-total of tax deductible items |
0.13 | 0.09 | ||||||
(Less): Tax impact of tax deductible items (1) |
(0.05 | ) | (0.04 | ) | ||||
Non-GAAP Adjusted Net Income per Diluted Share |
$ | 0.17 | $ | 0.06 | ||||
Weighted average shares — diluted |
35,657 | 35,201 | ||||||
| (1) | - Tax impact calculated using federal statutory tax rate of 34% and a blended state tax rate of 6% |
Explanation of Non-GAAP Financial Measures
The Company reports its financial results in accordance with United States generally accepted
accounting principles, or GAAP. However, management believes that in order to properly understand
the Company’s short-term and long-term financial and operational trends, investors may wish to
consider the impact of certain non-cash or non-recurring items, when used as a supplement to
financial performance measures in
accordance with GAAP. These items result from facts and circumstances that vary in frequency and/or
impact on continuing operations. Management also uses results of operations before such items to
evaluate the operating performance of the Company and compare it against past periods, make
operating decisions, and serve as a basis for strategic planning. These non-GAAP financial measures
provide management with additional means to understand and evaluate the operating results and
trends in the Company’s ongoing business by eliminating certain non-cash expenses and other items
that management believes might otherwise make comparisons of the Company’s ongoing business with
prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability
to make useful forecasts. Management believes that these non-GAAP financial measures provide
additional means of evaluating period-over-period operating performance. In addition, management
understands that some investors and financial analysts find this information helpful in analyzing
the Company’s financial and operational performance and comparing this performance to its peers and
competitors.
Management defines “Non-GAAP Adjusted Gross Profit” as total revenue, less direct operating
expense, plus stock-based compensation expense allocated to direct operating expense and
amortization of purchased intangibles, and “Non-GAAP Adjusted Gross Margin” as non-GAAP Adjusted
Gross Profit as a percentage of total revenue. Management considers these non-GAAP financial
measures to be important indicators of the Company’s operational strength and performance of its
business and a good measure of its historical operating trends. Moreover, management believes that
these measures enable investors and financial analysts to closely monitor and understand changes in
the Company’s ability to generate income from ongoing business operations.
Management defines “Non-GAAP Adjusted EBITDA” as the sum of GAAP net income before provision for
income taxes, acquisition-related expenses, total other (income) expense, stock-based compensation
13
expense, depreciation and amortization, and amortization of purchased intangibles and “Non-GAAP
Adjusted EBITDA Margin” as Non-GAAP Adjusted EBITDA as a percentage of total revenue. Management
defines “Non-GAAP Adjusted Operating Income” as the sum of GAAP net income before provision for
income taxes, amortization of purchased intangibles, acquisition-related expenses, total other
(income) expense, stock-based compensation expense, and “Non-GAAP Adjusted Operating Income Margin”
as Non-GAAP Adjusted Operating Income as a percentage of total revenue. Management defines
“Non-GAAP Adjusted Net Income” as the sum of GAAP net income before (gain) loss on interest rate
derivative contract, stock-based compensation expense, amortization of purchased intangibles,
acquisition-related expenses, and any tax impact related to these items, and “Non-GAAP Adjusted Net
Income per Diluted Share” as Non-GAAP Adjusted Net Income divided by weighted average diluted
shares outstanding. Management considers these non-GAAP financial measures to be important
indicators of the Company’s operational strength and performance of its business and a good measure
of its historical operating trends, in particular the extent to which ongoing operations impact the
Company’s overall financial performance.
Management excludes each of the items identified below from the applicable non-GAAP financial
measure referenced above for the reasons set forth with respect to that excluded item:
| • | Stock-based compensation expense — excluded because these are non-cash expenses that management does not consider part of ongoing operating results when assessing the performance of the Company’s business, and also because the total amount of expense is partially outside of the Company’s control because it is based on factors such as stock price volatility and interest rates, which may be unrelated to our performance during the period in which the expense is incurred. | ||
| • | Acquisition-related expenses and amortization of purchased intangibles — acquisition-related expenses are reported at the time acquisition costs are incurred, and purchased intangibles are amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, these items are not considered by management in making operating decisions, and management believes that such expenses do not have a direct correlation to future business operations. Thus, including such charges does not accurately reflect the performance of the Company’s ongoing operations for the period in which such charges are incurred. | ||
| • | Gains and losses on interest rate derivative contract — excluded because until they are realized, to the extent these gains or losses impact a period presented, management does not believe that they reflect the underlying performance of ongoing business operations for such period. |
14
Supplemental Metrics and Definitions
Supplemental Metrics (unaudited)
Last Updated: March 31, 2011
Last Updated: March 31, 2011
| Fiscal Year | ||||||||||||||||||||
| Fiscal Year 2010 | 2011 | |||||||||||||||||||
| Ql | Q2 | Q3 | Q4 | Q1 | ||||||||||||||||
Client Base |
||||||||||||||||||||
Total Physicians on athenaCollector |
16,369 | 17,136 | 18,573 | 19,197 | 19,778 | |||||||||||||||
Total Providers on athenaCollector |
23,978 | 24,782 | 26,317 | 27,114 | 27,944 | |||||||||||||||
Total Physicians on athenaClinicals |
1,275 | 1,548 | 1,992 | 2,383 | 2,910 | |||||||||||||||
Total Providers on athenaClinicals |
1,867 | 2,256 | 2,818 | 3,348 | 4,161 | |||||||||||||||
Total Physicians on athenaCommunicator |
348 | 442 | 625 | 736 | 934 | |||||||||||||||
Total Providers on athenaCommunicator |
513 | 689 | 946 | 1,213 | 1,564 | |||||||||||||||
Client Performance |
||||||||||||||||||||
Client Satisfaction |
86.6 | % | 86.1 | % | 85.7 | % | 87.6 | % | 86.2 | % | ||||||||||
Client Days in Accounts Receivable (DAR) |
40.0 | 38.8 | 38.8 | 38.8 | 41.0 | |||||||||||||||
First Pass Resolution (FPR) Rate |
93.1 | % | 93.4 | % | 94.2 | % | 94.4 | % | 94.1 | % | ||||||||||
Electronic Remittance Advice (ERA) Rate |
68.9 | % | 68.8 | % | 72.1 | % | 75.8 | % | 74.6 | % | ||||||||||
Total Claims Submitted |
11,175,099 | 11,312,806 | 11,837,095 | 13,075,933 | 13,651,586 | |||||||||||||||
Total Client Collections |
$ | 1,312,820,931 | $ | 1,421,347,731 | $ | 1,517,064,118 | $ | 1,613,043,890 | $ | 1,608,313,685 | ||||||||||
Total Working Days |
61 | 64 | 64 | 61 | 62 | |||||||||||||||
Employees |
||||||||||||||||||||
Direct |
630 | 675 | 690 | 691 | 719 | |||||||||||||||
Sales & Marketing |
157 | 168 | 186 | 199 | 217 | |||||||||||||||
Research & Development |
172 | 187 | 197 | 211 | 216 | |||||||||||||||
General & Administrative |
130 | 136 | 140 | 141 | 144 | |||||||||||||||
Total Employees |
1,087 | 1,166 | 1,213 | 1,242 | 1,296 | |||||||||||||||
Quota Carrying Sales Force |
||||||||||||||||||||
Small Practice |
25 | 27 | 34 | 38 | 38 | |||||||||||||||
Group Practice |
20 | 23 | 22 | 25 | 26 | |||||||||||||||
Enterprise Segment |
5 | 6 | 7 | 7 | 7 | |||||||||||||||
Cross-Sell |
5 | 6 | 7 | 7 | 7 | |||||||||||||||
Total Quota Carrying Sales Representatives |
55 | 62 | 70 | 77 | 78 | |||||||||||||||
15
Supplemental Metrics Definitions
Client Base
Total Physicians on athenaCollector
|
The number of physicians that have rendered a service which generated a medical claim that was billed during the last 91 days on the athenaCollector platform. Examples of physicians include Medical Doctors (MD) and Doctor of Osteopathic Medicine (DO). | |
Total Providers on athenaCollector
|
The number of providers, including physicians, that have rendered a service which generated a medical claim that was billed during the last 91 days on the athenaCollector platform. Examples of non-physician providers are Nurse Practitioners (NP) and Registered Nurses (RN). | |
Total Physicians on athenaClinicals
|
The number of physicians that have rendered a service through the athenaClinicals platform which generated a medical claim that was billed during the last 91 days on the athenaCollector platform. Examples of physicians include Medical Doctors (MD)and Doctor of Osteopathic Medicine (DO). | |
Total Providers on athenaClinicals
|
The number of providers, including physicians, that have rendered a service through the athenaClinicals platform which generated a medical claim that was billed during the last 91 days on the athenaCollector platform. Examples of non-physicians are Nurse Practitioners (NP) and Registered Nurses (RN). | |
Total Physicians on athenaCommunicator
|
The number of physicians that have rendered a service which generated a medical claim that was billed during the last 91 days on the athenaCollector platform and whose practice is actively using athenaCommunicator. | |
Total Providers on athenaCommunicator
|
The number of providers, including physicians, that have rendered a service which generated a medical claim that was billed during the last 91 days on the athenaCollector platform and whose practice is actively using athenaCommunicator. | |
Client Performance |
||
Client Satisfaction
|
The percentage of athenaCollector clients who chose 4 or 5 on a scale of 1 to 5 when asked if they would recommend athenahealth to a trusted friend or colleague. These responses are generated from a “client listening” survey that the company conducts for two segments of its client base twice per year. | |
Client Days in Accounts Receivable (DAR)
|
The average number of days that it takes outstanding balances on claims to be resolved, e.g. paid, for clients on athenaCollector. Clients that have been live less than 90 days are excluded, as well as clients who are terminating services. | |
First Pass Resolution (FPR) Rate
|
Approximates the percentage of primary claims that are favorably adjudicated and closed after a single submission during the period. Currently, the FPR rate is calculated on a monthly basis, and certain practices are excluded (e.g. those that have been live for less than 90 days). | |
Electronic Remittance Advice (ERA) Rate
|
Remittance refers to the information about payments (a/k/a explanations of benefits) received from insurance companies during the period. The ERA rate reflects the percentage of total charges that were posted using electronic remittance. | |
Total Claims Submitted
|
The number of claims billed through athenaNet during the period. | |
Total Client Collections
|
The dollar value of collections posted on behalf of clients during the period. | |
Total Working Days
|
The total number of days during the quarter minus weekends and U.S. Post Office holidays. | |
Employees |
||
Direct
|
The total number of full time equivalent individuals (FTEs) employed by the Company to support its service operations as of quarter end. This team includes production systems, enrollment services, paper claim submission, claim resolution, clinical operations, professional services, account management, and client services. | |
Sales & Marketing
|
The total number of FTEs employed by the Company to support its sales and marketing efforts as of quarter end. This team includes sales representatives, business development staff and the marketing team. | |
Research & Development
|
The total number of FTEs employed by the Company to support its research and development efforts as of quarter end. This team includes product development and product management. | |
General & Administrative
|
The total number of FTEs employed by the Company to support its general and administrative functions as of quarter end. This team includes finance, human resources, compliance, learning and development, internal audit, corporate technology, recruiting, facilities, and legal. | |
Total Employees
|
The total number of FTEs employed by the Company as of quarter end. This number excludes interns and seasonal employees. | |
Quota-Carrying Sales Force |
||
Small Practice
|
Quota-carrying sales representatives assigned to bring in net new annual recurring revenue from the small practice segment (organizations with 1-3 physicians) as of quarter end. | |
Group Practice
|
Quota-carrying sales representatives assigned to bring in net new annual recurring revenue from the group practice segment (organizations with 4-150 physicians) as of quarter end. | |
Enterprise Segment
|
Quota-carrying sales representatives assigned to bring in net new annual recurring revenue from the enterprise market segment (organizations with 150+ physicians) as of quarter end. | |
Cross-Sell
|
Quota-carrying sales representatives assigned to bring in net new annual recurring revenue from the sale of additional services to existing athenaCollector clients as of quarter end. | |
Total Quota Carrying Sales Representatives
|
The total number of sales representatives who carry quota for net new annual recurring revenue as of quarter end. |
16